One of the most important trends in merger control in recent years has been a movement towards the use of empirical economic methods to study the likely anticompetitive effects of mergers. Unilateral effects simulation can predict price increases or decreases for a merger involving firms in the same market, depending on efficiencies and changes in market structure including repositioning and divestitures. Calibrated economic models provide concrete, quantitative analyses of the effects of mergers on competition. In order to be able to rely on merger simulation models for accurate predictions of the impact of the transaction in the post merger market, they must reflect critical features of the nature of competition in the market, such as whether the product is homogeneous or highly differentiated. The ability of a merger simulation model to explain the impact of mergers in the past in an industry may indicate its ability to accurately predict the impact of mergers in the future. The use of accurate demand specification models significantly enhances the focus, accuracy, and persuasiveness of merger simulation analysis. In this article we will address the importance of merger simulation models and the way that such models can be implemented in practice in the assessment of mergers.
World Competition